Municipals slide amid selling pressure; St. Petersburg preps $77.6 million bond offering

By Sheri Kasprzak

New York, Dec. 14 - Municipal yields were softer on Friday once again after secondary selling pressure put a damper on the market, traders reported.

"Yields are up 3 to 6 bps," said one trader reached in the afternoon. "With so much supply, secondary activity is severely lacking."

Market insiders have speculated that the coming week, which will likely include much less supply than recent weeks, could take some pressure off of yields. Yields struggled throughout the week, with yields diving by as much as 8 bps early in the week. Market insiders tried to remain optimistic, noting that the downslide was likely a correction rather than a long-term trend.

Puerto Rico gets cut

Meanwhile, the Commonwealth of Puerto Rico took a cut from Moody's Investors Service. The commonwealth's general obligation debt was sliced to Baa3 from Baa1.

"Moody's cited weak economic growth prospects, high debt levels, weak financial performance, and lack of pension reform," said Alan Schankel, managing director with Janney Montgomery Scott LLC.

"The downgrade affected $38 billion in debt, about 1% of outstanding municipal debt, with hotel tax, rum tax and Government Development Bank bonds also brought to Baa3. PR appropriation-backed debt issued by the Public Finance Corp., aqueduct and sewer bonds and certain highway issues were downgraded to Ba1.

"Last month, following the election of a new governor, S&P, which rates G.O. debt at BBB with a negative outlook, said there was a one in three chance of a downgrade with progress on pension reform a key consideration."

The timing of the downgrade, Schankel said, is puzzling since the new governor won't take office until Jan. 2.

In other ratings news, Moody's placed $2 billion of U.S. housing bonds on review for downgrade, Schankel said Friday.

"The action impacts 341 issues, primarily Aaa-rate, with downgrade actions, if taken, likely to be one notch to Aa1, although 12 issues are now rated below Aaa," Schankel said.

St. Petersburg deal ahead

In new issue activity for the week ahead, the City of St. Petersburg, Fla., plans to price $77,615,000 of series 2013 public utility revenue bonds (Aa2//AA). The bonds will price Tuesday through competitive sale.

The offering includes $38.09 million of series 2013A revenue bonds, which are due 2014 to 2042, and $39,525,000 of series 2013B revenue refunding bonds, which are due 2014 to 2033.

Proceeds will be used to acquire, construct and rehabilitate a wastewater force main and wastewater facility, as well as to refund existing debt.

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